This section of our Case Law Library looks at cases related to:
- Whether a Landlord is entitled to recharge their Legal Costs to a Leaseholder
- Whether Legal Costs are a Service Charge or Administrative cost or both
- Whether Legal Costs are reasonable and whether Leaseholder are entitled to a reduction if they are not
Entitlement to Charge under the terms of a Lease:
This case, heard at the England and Wales Court of Appeal (EWCA), concerned the issue of whether the wording of a lease allowed a Landlord to claim legal costs from a Leaseholder. This case has wide implications for Leaseholders as the EWCA decided that a clause in a Lease which allows a Landlord to recover the costs of issuing proceeding for forfeiture could also be interpreted as allowing the Landlord to recover costs for other types of legal action related to Service Charges.
Decision where the Upper Tribunal sets limits on the circumstances under which a Landlord may claim legal costs as an Administration charge on the basis that the Lease includes a clause that allows that Landlord to claim costs in the event of forfeiture proceedings. This case relates closely to the earlier Court of Appeal decision in the case of 69 Marina v Oram which found that any legal proceedings in respect of a purported breach of Lease are connected to the process of seeking forfeiture of a lease.
In this case the Upper Tribunal decided that legal costs incurred by the landlord as a consequence of legal action being taken by a leaseholder against the landlord for a breach of their repairing covenant were not rechargeable as a service charge, but only because it did not consider that the wording of the lease permitted costs incurred in these circumstances to be recharged as a service. Note also that the Upper Tribunal stated that it was of no significance to the issue in dispute that the landlord was a leaseholder owned company.
Following the principles established in the case of Barrett v Robinson the Upper Tribunal decided that the leaseholder was liable for the legal costs of the landlord because there was evidence that the landlord was considering issuing proceedings for forfeiture of the lease. This evidence was important because the lease in question containing a clause allowing costs in connection with the issuing of a notice under section 146 of the Law of Property Act 1925 to be recharged to the leaseholder.
In this case the Upper Tribunal reviewed very old case law and decided that, as a point of law, there are no grounds for distinguishing between in-house legal representation and external legal providers when determining liability for legal costs.
Decision by the Upper Tribunal that a landlord claims for costs associated with action to address a breach of lease on the part of a tenant fell within the definition of an administration charge given in Part 1 of Schedule 11 of the Commonhold and Leasehold Reform Act 2002, and were therefore subject to the requirement that they be reasonable.
Reasonableness of the Decision to Incur Legal Costs
Decision by the Lands Tribunal that it been unreasonable for a landlord to incur costs at the County Court in pursuit of a claim for payment for overdue service charge contribution because the landlord had not first obtained legal advice confirming the landlord’s entitlement the amount claimed.
Recovery of Legal Costs Through the County Court
Two significant points were decided by the Court of Appeal in this case. Firstly, that a Court has the power to order payment of costs due under the terms of lease where they costs arose as a consequence of earlier proceedings in the LVT. Secondly, that the amount of the costs which can be awarded are not limited by the Civil Procedure Rules (CPR 27.14) where a the case is allocated to the small claims track.